Free Insurance Licensing Life-Producer Practice Exam with Questions & Answers | Set: 2

Offering settlements below fair value (D) is prohibited as an unfair claims settlement practice under Maryland law. Insurers must handle claims in good faith and pay fair settlements based on policy terms.

Negotiating claims (A): Permitted when there are legitimate disputes over coverage or liability.

Denying claims (B): Allowed if based on valid policy exclusions or conditions.

Including arbitration provisions (C): Legal, provided they comply with state guidelines and are not coercive.

Unfair claims settlement practices include:

Misrepresenting policy provisions.

Failing to promptly investigate or settle claims.

Attempting to settle for less than reasonable amounts.

Purpose of underwriting criteria.

Underwriting criteria must relate to risk assessment or policy performance.

Permissible factors.

Gender: Historically used where actuarially justified.

Occupation: Reflects hazard exposure.

Ability to pay premiums: Ensures policy sustainability.

Prohibited factors.

Religion is a protected characteristic and cannot be used in underwriting.

Maryland anti-discrimination rules.

Maryland prohibits unfair discrimination unrelated to actuarial risk.

Conclusion.

Religion is not a lawful underwriting criterion.

The needs approach assesses financial requirements to determine the appropriate amount of life insurance.

Covering unexpected expenses (B): Emergency reserve funds help beneficiaries handle unforeseen costs, such as urgent repairs, medical emergencies, or temporary loss of income.

College tuition and books (A): This falls under education funding needs, not emergency reserves.

Paying off mortgages (C): This is categorized as debt repayment, separate from the reserve fund.

Providing retirement income (D): This is a long-term goal that requires separate planning, not immediate financial reserves.

Role of federal securities regulation.

Securities laws regulate investments such as:

Stocks

Bonds

Variable life insurance

Variable annuities

Authority of the SEC.

The Securities and Exchange Commission (SEC) is the federal agency created by Congress to:

Enforce federal securities laws

Regulate securities markets

Protect investors

Relevance to insurance producers.

Maryland producers selling variable products must:

Hold an insurance license, and

Be registered with FINRA and regulated by the SEC.

Why the other options are incorrect.

The other agencies listed do not exist under federal law.

Conclusion.

The SEC enforces securities laws enacted by Congress.

The beneficiary is the individual or entity named in the life insurance policy to receive the death benefit upon the insured’s death.

Designated recipient of proceeds (B): The policyholder nominates this party in the policy documents.

Ownership interest in the policy (A): Refers to the policyowner, who controls and funds the policy but may not be the beneficiary.

Insurer (C): Issues and administers the policy but is not a recipient.

Owner of the cash value fund (D): This pertains to cash value accumulation, separate from death benefit designation.

Purpose of the incontestability clause.

Protects policyowners from having claims denied long after issuance.

Encourages insurers to investigate applications promptly.

How contestability works.

For the first two years, insurers may contest the policy for material misrepresentation.

After two years, the policy becomes incontestable, except for fraud in some jurisdictions.

Evaluate each option.

A. Cannot be contested once issued

Incorrect. The contestable period still applies.

B. Contestable only during first two years

Correct.

C. Contestable at all times

Incorrect. This would defeat the purpose of the clause.

D. Only if felony conviction

Incorrect and unrelated.

Maryland statutory relevance.

Maryland requires incontestability provisions in life insurance policies.

Conclusion.

A life insurance policy is contestable only during the first two years.

Maryland law allows insurers to consider medical conditions (A) as part of the underwriting process, provided it is done fairly and within legal boundaries.

Race (B), Gender (C), and Creed (D): Discrimination based on these factors is strictly prohibited under Maryland’s anti-discrimination laws and the Unfair Trade Practices Act.

Insurers must comply with state and federal regulations, ensuring underwriting decisions are based on actuarially justified factors, such as health and lifestyle, rather than prohibited discriminatory criteria.

The Maryland Insurance Administration (MIA) is the regulatory body responsible for ensuring compliance with state insurance laws, including identifying unfair trade practices:

The Maryland Insurance Administration (A): Has statutory authority to examine insurers’ books and records to investigate potential violations and protect consumers.

National Association of Insurance Commissioners (B): Provides guidance but lacks enforcement powers in Maryland.

Federal Deposit Insurance Corporation (C): Regulates banks, not insurers.

PCIGC (D): Handles claims for insolvent insurers but does not investigate trade practices.

An insurable interest exists when the policyholder benefits more from the insured’s life than their death.

Benefiting from the other person’s continued life (C): Correct. This applies to relationships where there is a legal, financial, or familial dependence.

Gaining economically by the death of the other person (A): Mischaracterizes insurable interest; financial gain from death without a legitimate relationship is unethical and illegal.

Continuing on good terms (B) and seeing the person survive (D): Do not constitute insurable interest under Maryland law.

The life insurance buyer’s guide is designed to help potential policyholders make informed decisions about life insurance by:

Explaining how to decide how much life insurance to buy (C), ensuring individuals purchase adequate coverage for their needs.

Providing details to compare life insurance policy requirements (D) to evaluate and choose the best policy.

Showing how to compare rates (A) for different policies to find cost-effective options.

However, it does not include instructions for taking civil action against an insurer (B). Such legal matters fall outside the scope of the guide and are addressed in regulatory and legal channels.